[Inside Chodong] IRA Countermeasures: Japan's Moves Are as Important as Those of the U.S.

As the impact of the U.S. Inflation Reduction Act (IRA) is becoming a reality, our government and companies are busy preparing countermeasures. However, the lack of any particularly effective solutions is causing even greater concern. So, what about our competitor, Japan? Are they also facing urgent challenges like us?

To conclude, Japan’s situation is somewhat better than ours, but the atmosphere is equally frustrating. According to KOTRA’s ‘Global Supply Chain Insight’ Issue 30, Nissan is currently the only Japanese automaker producing electric vehicles locally in the U.S.

Ultimately, except for Nissan, other Japanese companies are finding it difficult to qualify for subsidies. It is especially painful for Japan that Toyota, a leading automaker, is excluded. In the first quarter of this year, the six major Japanese automakers, including Toyota, sold about 6 million vehicles in North America, accounting for roughly 30% of their global sales. Excluding Mazda, which posted an operating loss, the combined North American operating profit of the other five companies was approximately 1.5 trillion yen, about 40% of their total profits. Nissan and Subaru’s North American operations outperformed their combined profits from other regions, and Honda’s North American business accounted for 60% of its total operating profit. This underscores the importance of the U.S. market to Japanese companies.

Japan also faces a challenging road in the U.S. electric vehicle market. While U.S. electric vehicle sales increased 2.1 times year-on-year to 630,000 units last year, Nissan’s Leaf, which accounts for most of Japan’s electric vehicle sales in the U.S., sold only about 14,000 units.

According to the UK research firm LMC Automotive, U.S. electric vehicle sales are expected to grow about 15.5 times from last year to approximately 6.3 million units by 2030, representing 40% of the entire U.S. market. However, Japanese companies complain that immediate responses to qualify for U.S. tax credits are difficult. A Toyota executive pointed out, “The pace of real demand and policy do not align.” Another manufacturer’s representative said, “It is very difficult for all automakers to produce batteries without using Chinese resources,” and added, “Electric vehicles for the North American market require a supply chain restructuring.”

Toyota aims to sell 3.5 million electric vehicles globally by 2030, Honda targets 40% of its North American sales to be electric vehicles and fuel cell vehicles (FCVs) by 2030, and Nissan plans to increase its U.S. electric vehicle sales ratio to over 40% by the first quarter of 2031. Ultimately, since Japanese cars will also find it difficult to receive subsidy support under these plans, Japan is continuously requesting the U.S. government to reconsider the regulations.

We also need to consider Japan’s situation. The U.S. Treasury Department and the Internal Revenue Service (IRS) are accepting comments on the tax benefits provided under the Inflation Reduction Act until July 4 (local time). This is a public consultation process before the enacted law is implemented, and the Biden administration plans to establish implementation rules for the Inflation Reduction Act, including regulations on electric vehicle subsidies, by the end of this year.

It is clear that Japan will raise its voice actively during this process, so we must strongly convey our opinions as well. In particular, we should emphasize that while we have a Free Trade Agreement (FTA) with the U.S., Japan does not. We must prevent the worst-case scenario where Japan, known for its strong lobbying power, receives subsidies alone, excluding us. We must not overlook the fact that this could give Japan an opportunity to overtake us in the electric vehicle sector, where we have been leading.

This content was produced with the assistance of AI translation services.